[Federal Register Volume 77, Number 156 (Monday, August 13, 2012)]
[Notices]
[Pages 48188-48191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19740]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67607; File No. SR-EDGA-2012-35]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Amendments to the EDGA Exchange, Inc. Fee Schedule
August 7, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 1, 2012 the EDGA Exchange, Inc. (the ``Exchange'' or
``EDGA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its fees and rebates applicable to
Members \3\ of the Exchange pursuant to EDGA Rule 15.1(a) and (c). All
of the changes described herein are applicable to EDGA Members. The
text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.directedge.com, at the Exchange's
principal office, and at the Public Reference Room of the Commission.
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\3\ A Member is any registered broker or dealer, or any person
associated with a registered broker or dealer, that has been
admitted to membership in the Exchange.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to append Footnote 18 to its standard rebate
of $0.0003 per share for adding liquidity on the EDGA fee schedule to
add the Step Up Tier. The Exchange also proposes to append Footnote 18
to Flags B, V, Y, 3, and 4 to signify a potential rate change should
the Member meet the criteria of the Step Up Tier. Members may qualify
for a rebate of $0.0005 per share on their displayed shares (Flags B,
V, Y, 3, and 4) for adding liquidity to EDGA if the Member, on a daily
basis, measured monthly, posts 0.10% of the Total Consolidated Volume
(``TCV'') \4\ in Average Daily Volume (``ADV'') more than their July
2012 ADV added to EDGA.
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\4\ TCV is defined as volume reported by all exchanges and trade
reporting facilities to the consolidated transaction reporting plans
for Tapes A, B and C securities for the month prior to the month in
which the fees are calculated.
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Because the Exchange can now differentiate non-displayed orders
that add liquidity using the Mid Point Discretionary Order type \5\
(Flag DM) from non-displayed orders that remove liquidity using the Mid
Point Discretionary Order type (Flag DT),\6\ the Exchange proposes to
count the volume generated from Flags DM and DT toward the volume
threshold in Footnote 2 since Flags DM and DT represent a non-displayed
order type. Therefore, where a Member adds or removes liquidity using
non-displayed (hidden) orders, a Member is charged a rate of $0.0010
per share for Flags HA or HR, contingent upon a Member adding or
removing greater than 1,000,000 shares hidden on a daily basis,
measured monthly (where the volume generated from Flags HA, HR, DM and
DT count towards this tier) or a Member posting greater than 8,000,000
shares on a daily basis, measured monthly. Members not meeting either
minimum will be charged $0.0030 per share for Flags HA or HR. The
Exchange proposes to make conforming amendments to the text of Footnote
2. The Exchange notes that it will continue to charge Members a rate of
$0.0005 per share for non-displayed orders that add liquidity using Mid
Point Discretionary Orders that yield Flag DM and $0.0005 per share for
non-displayed orders that remove liquidity using Mid Point
Discretionary Orders that yield Flag DT.
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\5\ See Securities Exchange Act Release No. 67226 (June 20,
2012), 77 FR 38113 (June 26, 2012) (SR-EDGA-2012-22).
\6\ See Securities and Exchange Act Release No. 67380 (July 10,
2012), 77 FR 41847 (July 16, 2012) (SR-EDGA-2012-29) (where the
Exchange provided additional transparency to Members by bifurcating
then existing Flag DM into two flags: Flag DM (adds liquidity in the
discretionary range) and Flag DT (removes liquidity in the
discretionary range)).
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The Exchange proposes to delete Footnote 4 that is appended to Flag
HA in order to clarify for Members that the volume from Flag HA counts
towards achieving the tiered pricing in Footnote 4 and the rate for
Flag HA does not change where a Member achieves the thresholds outlined
in Footnote 4. The Exchange notes that these proposed changes do not
modify the Exchanges existing treatment of Flag HA. This amendment
supports the Exchange's
[[Page 48189]]
efforts to annotate flags with footnotes to signify a potential rate
change, rather than annotating every flag to denote which flags
contribute towards the volume threshold and/or conditions necessary to
achieve a potential rate change. Accordingly, the Exchange also
proposes to add conforming language to Footnote 4 that indicates to
Members that the rebate of $0.0004 per share applies to Flags B, V, Y,
3 and 4, which is already indicated on the fee schedule by the Exchange
having appended Footnote 4 to these flags.
In SR-EDGA-2012-29, the Exchange proposed to pass-through the rates
for routing orders to the Nasdaq OMX PSX (the ``PSX'') on Flags K and
RS.\7\ Accordingly, in response to the proposed pricing changes in the
PSX's pending filing with the Securities and Exchange Commission, which
is effective August 1, 2012, the Exchange proposes to amend the fees
for Flags K and RS in response to the PSX's proposed fee changes.\8\
The Exchange proposes to increase the rate for Flag K from $0.0005 per
share to $0.0027 per share. The Exchange also proposes to change the
rate for Flag RS from a charge of $0.0005 per share to a rebate of
$0.0016 per share.
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\7\ See Securities and Exchange Act Release No. 67380 (July 10,
2012), 77 FR 41847 (July 16, 2012) (SR-EDGA-2012-29).
\8\ See NASDAQ OMX PSX, Price List--Trading and Connectivity,
http://www.nasdaqtrader.com/Trader.aspx?id=PSX_pricing.
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The Exchange proposes to implement these amendments to its fee
schedule on August 1, 2012.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4),\10\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and other persons using its
facilities.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4).
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The Exchange proposes to append Footnote 18 to its standard rebate
of $0.0003 per share for adding liquidity on the EDGA fee schedule and
Flags B, V, Y, 3, and 4 to add the Step Up Tier where Members may
qualify for a rebate of $0.0005 per share on their displayed shares
(Flags B, V, Y, 3, and 4) for liquidity added to EDGA if the Member on
a daily basis, measured monthly, posts at least 0.10% of the TCV in ADV
more than their July 2012 ADV added to EDGA. The Exchange believes a
rebate of $0.0005 per share for adding liquidity versus the default
rebate of $0.0003 per share represents an equitable allocation of
reasonable dues, fees, and other charges since higher rebates reward
higher liquidity provision commitments by Members. For example, in
order for a Member to qualify for the Step Up Tier rebate of $0.0005
per share, the Member must add on a daily basis, measured monthly,
0.10% of the TCV in ADV more than their July 2012 ADV. The Exchange
created a baseline of July 2012 ADV in order to reward a Member's
growth pattern in providing liquidity beyond a designated benchmark.
The Exchange believes that offering Members a higher rebate will
incentivize liquidity. Such increased volumes increase potential
revenue to the Exchange, and allows the Exchange to spread its
administrative and infrastructure costs over a greater number of
shares, which results in lower per share costs. The Exchange may then
pass on these savings to Members in the form of higher rebates. The
increased liquidity also benefits all investors by deepening EDGA's
liquidity pool, offering additional flexibility for all investors to
enjoy cost savings, supporting the quality of price discovery,
promoting market transparency and improving investor protection.
Volume-based rebates such as the Step Up Tier have been widely adopted
in the cash equities markets,\11\ and are equitable because volume-
based rebates are open to all Members on an equal basis and provide
discounts that are reasonably related to the value to an exchange's
market quality associated with higher levels of market activity, such
as higher levels of liquidity provision and introduction of higher
volumes of orders into the price and volume discovery process. Lastly,
the Exchange believes that the proposed amendment is non-discriminatory
because it applies uniformly to all Members.
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\11\ See Nasdaq's Investor Support Program where Nasdaq rewards
a member's growth pattern in tiers 1, 2 and 3 based on a defined
benchmark. See NASDAQ, Price List--Trading and Connectivity, http://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2. See also NYSE
Arca's Step Up tier where NYSE Arca rewards a member's growth
pattern based on a defined benchmark. See NYSE Arca, NYSE Arca
Equities Trading Fees, http://usequities.nyx.com/markets/nyse-arca-equities/trading-fees.
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In Footnote 4 of the fee schedule, the Exchange notes that it
currently offers a $0.0004 per share rebate for Members that, on a
daily basis, measured monthly, posts more than 1% of the TCV in average
daily volume on EDGA, including non-displayed orders that add
liquidity. Secondly, a Member, on a daily basis, measured monthly, that
posts more than .25% of the TCV on EDGA, including non-displayed orders
that add liquidity, and removes more than .25% of TCV in average daily
volume, will also qualify for the rebate of $0.0004 per share in
Footnote 4. The Exchange believes that the $0.0005 per share rebate in
the Step Up assigns a higher value to and rewards a Member's growth
pattern over a designated benchmark in a way that attracts new
liquidity to the market and is distinctly different from the volume-
based tier in Footnote 4. Such increased volume from a Member's growth
over said designated benchmark and the resulting liquidity to the
market increases potential revenue to the Exchange, and would allow the
Exchange to spread its administrative and infrastructure costs over a
greater number of shares, leading to lower per share costs. These lower
per share costs would allow the Exchange to pass on the savings to
Members in the form of higher rebates. The increased liquidity also
benefits all investors by deepening EDGA's liquidity pool, offering
additional flexibility for all investors to enjoy cost savings,
supporting the quality of price discovery, promoting market
transparency and improving investor protection. Offering rebates that
reward growth patterns such as the ones proposed herein have been
widely adopted in the cash equities markets, and are equitable because
they are open to all Members on an equal basis and provide discounts
that are reasonably related to the value to an exchange's market
quality associated with higher levels of market activity, such as
higher levels of liquidity provision and introduction of higher volumes
of orders into the price and volume discovery processes.
In SR-EDGA-2012-29, the Exchange bifurcated Flag DM into Flags DM
and DT to promote market transparency and improve investor protection
by adding additional transparency to its fee schedule in order to more
precisely delineate for Members whether they were ``adders of
liquidity'' or ``removers of liquidity'' for purposes of Members' non-
displayed orders using the Mid Point Discretionary order type.
Similarly, the Exchange believes that counting the volume generated
from Flags DM and DT toward the volume threshold in Footnote 2 is
reasonable and equitable given that the Exchange can now differentiate
between non-displayed orders that add liquidity in the discretionary
range from non-displayed orders that remove liquidity in the
discretionary range, as explained above. Including Flags DM and DT in
Footnote 2 allows their associated
[[Page 48190]]
volume to be tracked by the Exchange in the appropriate tier(s), which
may incent Members to increase use of the volume tiers in the fee
schedule. Such volume will increase potential revenue to the Exchange,
and would allow the Exchange to spread its administrative and
infrastructure costs over a greater number of shares, leading to lower
per share costs. These lower per share costs would allow the Exchange
to pass on the savings to Members in the form of higher rebates/lower
costs. The increased liquidity also benefits all investors by deepening
EDGA's liquidity pool, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection. The Exchange also believes that the proposed change is non-
discriminatory because it applies uniformly to all Members.
The Exchange proposes to delete Footnote 4 that is appended to Flag
HA because the volume from Flag HA counts towards achieving the tiered
pricing in Footnote 4 and the rate for Flag HA does not change where a
Member achieves the thresholds outlined in Footnote 4. The Exchange
believes this amendment to Flag HA supports the Exchange's effort to
achieve consistent application among the flags on the fee schedule and
provide transparency for its Members. In addition, this amendment
supports the Exchange's efforts to annotate flags with footnotes to
signify a potential rate change, rather than annotating every flag to
denote which flags contribute towards the volume threshold and/or
conditions necessary to achieve a potential rate change. Accordingly,
the Exchange also proposed to add conforming language to Footnote 4
that indicates to Members that the rebate of $0.0004 per share applies
to Flags B, V, Y, 3 and 4, as was already indicated by appending
Footnote 4 to these flags on the fee schedule. The Exchange also
believes that these proposed amendments are non-discriminatory because
they apply to all Members.
The Exchange proposes to amend the fees for Flags K and RS in
response to the proposed pricing changes in the PSX's pending filing
with the Securities and Exchange Commission, which is effective August
1, 2012, where the PSX proposed a range of fees and rebates for Tape A
and Tapes B and C securities. At this time, the PSX passes through
applicable fees and/or rebates to DE Route, which, in turn, passes
through the applicable fees and/or rebates to the Exchange. In response
to the PSX's pending filing, the Exchange proposes to increase the rate
for Flag K from $0.0005 per share to $0.0027 per share, and the rate
for Flag RS from a charge of $0.0005 per share to a rebate of $0.0016
per share. Because the Exchange's fee schedule currently does not
differentiate between Tape A and Tapes B and C securities that are
routed to the PSX in Flags K and RS and the Exchange cannot mirror the
new PSX fees associated with each tape, the Exchange proposes assessing
its Members the highest fee and the lowest rebate associated with the
PSX's pending filing for all tapes for ease of administration and to
prevent potential arbitrage. The Exchange also notes that routing
through DE Route is voluntary. The Exchange believes this represents an
equitable allocation of reasonable dues, fees and other charges since
it reflects the pass-through of these fees from the PSX. In addition,
the Exchange believes that it is reasonable and equitable to pass-
through certain fees to its Members. The Exchange also believes that
the proposed pass-through of fees is non-discriminatory because it
applies to all Members.
The Exchange also notes that it operates in a highly-competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive. The proposed rule change reflects a competitive pricing
structure designed to incent market participants to direct their order
flow to the Exchange. The Exchange believes that the proposed rates are
equitable and non-discriminatory in that they apply uniformly to all
Members. The Exchange believes the fees and credits remain competitive
with those charged by other venues and therefore continue to be
reasonable and equitably allocated to Members.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3) of the Act \12\ and Rule 19b-4(f)(2) \13\ thereunder. At any
time within 60 days of the filing of such proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 19b-4(f)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please
include File Number SR-EDGA-2012-35 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGA-2012-35. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
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10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-EDGA-2012-35 and should be
submitted on or before September 4, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19740 Filed 8-10-12; 8:45 am]
BILLING CODE 8011-01-P